TRUMP’S TAX LAW AND RECESSION

February 11, 2018

TRUMP’S TAX LAW AND RECESSION

Steven Pressman, professor of economics at Colorado State University, wrote a piece for the current edition of The Washington Spectator which treats the effects of Trump’s recently passed tax law on the middle class in which he lays waste to Trump’s gushing misrepresentation of the law as a big Christmas present for working Americans, which it is anything but. It is a trickle up law that adopts the idea of making the rich richer and the poor poorer a policy choice, a choice made by Republicans in Congress on behalf of their rich and corporate donors, donors who in turn finance such Republicans’ reelection campaigns (think Kochs, Mercers, Wall Street banks et al.).

Professor Pressman brilliantly dissects Trump’s “tax law” for what it is – a theft in broad daylight, but I have my own ideas on some of the effects of this “tax law,” as follows. This massive “tax relief” bill, in my opinion, guarantees us a recession when its toxic effects take hold later this year or no later than next year. Giving our tax money away via deficit financing (running up our debt by at least 1.5 trillion) so that the taxes on the rich and corporate class can be lowered does nothing for aggregate demand, the sole arbiter of economic growth, and Republican predictions of three percent economic growth per annum for the next ten years that will pay for the increased debt are sheer fantasy. Indeed, recessions bring on negative economic growth, and since passage of this act has assured us that the Fed, spooked by fear of inflation, will raise interest rates, which will in turn and among other things roil the debt and equity markets even further than last week’s volatile performance, my prediction is, I think, a safe bet.

When you drop a rock in the middle of a goldfish pond, the concentric circles hit all shores, and when you raise interest rates, you put a damper on lending and employment and business expansion ranging from the local lumberyard and mom and pop restaurants to and through IBM and Walmart. My bet is that the combination of inflation and serial interest increases made to combat it will combine to do more than “cool off” the economy; I think unemployment will increase and that the miniscule reduction in taxes to working American will be more than eaten up by inflation, increased interest and higher prices with a resulting reduction in aggregate demand which will lead us into recession.

Using the goldfish pond analogy further, I note that increased interest rates will as always be passed along to ultimate consumers (you and me), and that such additional monies will go to Wall Street and not to aggregate demand in our economy. I likewise note that our Treasury will be paying bigger interest rates on the trillions of our debt as securities mature. These and other downers tell me we are headed for recession, whatever any politician tells us about the wonders of trickledown for the rich while neglecting to tell us of the trickle up effect on the middle class and the poor, who are stuck with the bill.

Time and space prevent me from detailed discussion of the selective features of the law which, among other things, cap state and local taxes as deductions, thus punishing taxpayers who reside in high tax states even further, but I cannot end this essay without calling attention to the fact that our unrepresented grandchildren (some unborn) will be paying for this payoff by Republicans to their rich and corporate friends today by borrowing on our grandchildrens’ future, a situation I find egregious and reprehensible. We once had a war based largely on taxation without representation, and while I don’t expect such a conflagration now, I think those of us who survive will have a tough time explaining to our grandchildren in 2029 why we allowed such a law to pass, assuming, of course, that we do not repeal this monstrosity during the interim – which I strongly recommend. GERALD E